Financial Derivatives (Tables)

9 Months Ended

Sep. 30, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Gains and Losses on Derivative Contracts

Gains and losses on the Company's derivative contracts for the three and nine month periods ended September 30, 2017 and 2016 are summarized in the tables below:

Three and Nine Month Periods Ended September 30, 2017:



		Three Month Period Ended September 30, 2017						Nine Month Period Ended September 30, 2017
Derivative Type	Primary Risk Exposure	Net Realized Gain/(Loss)⁽¹⁾			Change in Net Unrealized Gain/(Loss)⁽²⁾			Net Realized Gain/(Loss)⁽¹⁾			Change in Net Unrealized Gain/(Loss)⁽²⁾
(In thousands)
Credit default swaps on asset-backed securities	Credit	$	583		$	(577	)	$	486		$	(319	)
Credit default swaps on asset-backed indices	Credit	(58		)	(522		)	(2,514		)	(3,132		)
Credit default swaps on corporate bond indices	Credit	(975		)	(591		)	(2,147		)	(573		)
Credit default swaps on corporate bonds	Credit	(241		)	1,837			218			842
Total return swaps	Equity Market/Credit	(293		)	1			(1,649		)	150
Interest rate swaps	Interest Rates	318			(694		)	(262		)	(1,492		)
Futures	Interest Rates	(152		)	147			(331		)	183
Forwards	Currency	(4,013		)	2,026			(7,357		)	1,162
Warrants	Equity Market	—			—			(100		)	(6		)
Mortgage loan purchase commitments	Interest Rates	—			—			—			31
Options	Credit/Interest Rate/Equity Market	167			26			18			41
Total		$	(4,664	)	$	1,653		$	(13,638	)	$	(3,113	)


(1)	Includes gain/(loss) on foreign currency transactions on derivatives in the amount of $(56) thousand and $(68) thousand, for the three and nine month periods ended September 30, 2017, which is included on the Consolidated Statement of Operations in Realized gain (loss) on foreign currency transactions.


(2)	Includes foreign currency translation on derivatives in the amount of $(59) thousand and $(194) thousand, for the three and nine month periods ended September 30, 2017, which is included on the Consolidated Statement of Operations in Change in net unrealized gain (loss) on foreign currency translation.

Three and Nine Month Periods Ended September 30, 2016:



		Three Month Period Ended September 30, 2016						Nine Month Period Ended September 30, 2016
Derivative Type	Primary Risk Exposure	Net Realized Gain/(Loss)⁽¹⁾			Change in Net Unrealized Gain/(Loss)⁽²⁾			Net Realized Gain/(Loss)⁽¹⁾			Change in Net Unrealized Gain/(Loss)⁽²⁾
(In thousands)
Credit default swaps on asset-backed securities	Credit	$	622		$	(288	)	$	1,007		$	(518	)
Credit default swaps on asset-backed indices	Credit	983			(2,660		)	3,790			(905		)
Credit default swaps on corporate bond indices	Credit	(21,220		)	12,572			(34,230		)	(5,260		)
Credit default swaps on corporate bonds	Credit	110			(14		)	237			47
Total return swaps	Equity Market/Credit	(4,408		)	(917		)	(11,323		)	3,466
Interest rate swaps	Interest Rates	182			1,087			(1,167		)	(11,129		)
Futures	Interest Rates/Equity Market	(89		)	271			(824		)	417
Forwards	Currency	1,525			(1,855		)	221			(1,402		)
Warrants	Equity Market	—			—			(50		)	—
Mortgage loan purchase commitments	Interest Rates	—			—			—			8
Options	Credit/ Interest Rates	925			(656		)	7,257			(298		)
Total		$	(21,370	)	$	7,540		$	(35,082	)	$	(15,574	)


(1)	Includes gain/(loss) on foreign currency transactions on derivatives in the amount of $0.4 million and $0.3 million, for the three and nine month periods ended September 30, 2016, which is included on the Consolidated Statement of Operations in Realized gain (loss) on foreign currency transactions.


(2)	Includes foreign currency translation on derivatives in the amount of $(0.1) million and $1.0 million, for the three and nine month periods ended September 30, 2016, which is included on the Consolidated Statement of Operations in Change in net unrealized gain (loss) on foreign currency translation.

Derivative activity, volume

The tables below detail the average notional values of the Company's financial derivatives, using absolute value of month end notional values, for the nine month period ended September 30, 2017 and the year ended December 31, 2016:



Derivative Type	Nine Month Period Ended September 30, 2017		Year Ended December 31, 2016
	(In thousands)
Interest rate swaps	$	1,270,482	$	1,731,368
Credit default swaps	489,515		1,586,923
Total return swaps	22,536		113,628
Futures	57,240		371,900
Options	88,699		357,260
Forwards	74,623		80,513
Warrants	492		1,640
Mortgage loan purchase commitments	2,060		6,143

Schedule of Credit Derivatives

Written credit derivatives held by the Company at September 30, 2017 and December 31, 2016, are summarized below:



Credit Derivatives	September 30, 2017			December 31, 2016
(In thousands)
Fair Value of Written Credit Derivatives, Net	$	(705	)	$	(1,551	)
Fair Value of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties ⁽¹⁾	$	756		$	4,552
Notional Value of Written Credit Derivatives ⁽²⁾	$	158,397		$	117,476
Notional Value of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties ⁽¹⁾	$	90,411		$	68,357


(1)	Offsetting transactions with third parties include purchased credit derivatives which have the same reference obligation.

(2)

The notional value is the maximum amount that a seller of credit protection would be obligated to pay, and a buyer of credit protection would receive upon occurrence of a "credit event." Movements in the value of credit default swap transactions may require the Company or the counterparty to post or receive collateral. Amounts due or owed under credit derivative contracts with an International Swaps and Derivatives Association, or "ISDA," counterparty may be offset against amounts due or owed on other credit derivative contracts with the same ISDA counterparty. As a result, the notional value of written credit derivatives involving a particular underlying reference asset or index has been reduced (but not below zero) by the notional value of any contracts where the Company has purchased credit protection on the same reference asset or index with the same ISDA counterparty.

- Definition

Tabular disclosure of credit derivatives which includes information by sellers of credit derivatives, about each credit derivative, or each group of similar credit derivatives, including (a) the nature of the credit derivative - its term, how it arose, the events or circumstances that would require the seller to perform under the credit derivative, and the current status of the payment/performance risk of the credit derivative; (b) the maximum potential amount of future payments (undiscounted) the seller could be required to make under the credit derivative; (c) the current fair value of the credit derivative; and (d) the nature of any recourse provisions under the credit derivative, and any assets held either as collateral or by third parties. A credit derivative is a derivative instrument (1) in which one or more of its underlyings are related to the credit risk of a specified entity (or a group of entities) or an index based on the credit risk of a group of entities and (2) that exposes the seller to potential loss from credit-risk-related events specified in the contract. Examples of credit derivatives within the scope of this paragraph include, but are not limited to, credit default swaps, credit spread options, and credit index products; also includes a hybrid instrument that has an embedded credit derivative (for example, but not limited to, a credit-linked note).

+ References + Details